Whether a contract for oil field services in the Gulf of Mexico constitutes a maritime contract has always been a significant issue for the offshore energy industry. If it is a maritime contract, the parties' typical choice of maritime law will be enforced. If it is not a maritime contract, maritime law cannot apply and the contract will be subject to state law. For oil field contracts, this often means the application of Louisiana or Texas state law, whose anti-indemnity statutes can upset carefully negotiated contractual risk allocations. In short, this issue can determine who bears the liability for personal injuries, damage to property, or pollution damages.

The January 2018 decision in In re Larry Doiron, Inc. by the U.S. Court of Appeals for the Fifth Circuit created a new two-part inquiry to resolve this issue:

1. “Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?” and
2. “Does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?

In re Larry Doiron, Inc., 879 F.3d 568 (5^th Cir. 2018). If the answer is yes to both questions, then the oil field services contract constitutes a maritime contract. Seven months later, in In re Crescent Energy Services, the Court has applied this new test to a contract for well abandonment services. In re Crescent Energy Services, – F. 3d – (5^th Cir. 2018). The Court's opinion provides clarity on the scope of the Larry Doiron test and on the relevance of a significant body of caselaw decided under the now abandoned six-part Davis & Sons test.

The Crescent Energy Services decision involved an employee of a contractor (i.e., Crescent Energy Services) who was injured while performing well abandonment activities on a fixed platform off the coast of Louisiana. The master service agreement and work order specified the use of certain well abandonment equipment and the use of three vessels—a jack-up crane barge, a tug to move the barge and a small cargo barge.

As is typical in the Gulf of Mexico, the contractor agreed to indemnify the platform operator (i.e., Carrizo Oil & Gas) against claims for injuries to the contractor's employees. The contractor argued the contract for well abandonment services was non-maritime and subject to Louisiana law, which voids its indemnity obligation. The platform operator argued that a maritime contract existed such that their choice of maritime law should be enforced, rendering the indemnity provisions valid and enforceable. This is a dispute that many service companies and operators have each year.

1. Does the well abandonment contract facilitate the drilling or production of oil and gas on navigable waters?

This first inquiry under Larry Doiron required the Court to consider the meaning of “drilling or production of oil and gas.” In a strict sense, abandoning a well does not involve drilling or production activities. This narrow interpretation advanced by the contractor, however, was rejected by the Court in favor of a broader interpretation encompassing the “life-cycle” of drilling for oil and gas. In ultimately concluding that well abandonment activities were part of this life cycle, the Court relied on an operator's regulatory obligation to abandon wells at the completion of operations. The Court reasoned that well abandonment was nondiscretionary work that must be performed once a well is drilled and thus, the natural conclusion of a well's life cycle.

This life cycle/regulatory analysis potentially excludes several types of oil field contracts. This may include, for example, contracts for services that relate to the transportation of oil and gas, which the regulations generally distinguish from drilling and production activities. This may also include contracts involving the temporary plugging and abandoning of a well. This work preserves the well for potential future development but arguably is not involved in a well's life-cycle.

This interpretation also caused the Court to reconsider its precedent that contracts for “decommissioning, deconstructing, or salvaging a fixed platform used for oil and gas exploration on the [Outer Continental Shelf] . . . are not 'historically treated' as maritime contracts[.]” Tetra Tech., Inc. v. Continental Ins. Co., 814 F.3d 733, 741 (5^th Cir. 2016). The Court, while noting these general statements always yielded to the specifics of the contract, acknowledged that the Larry Doiron test was the law regardless of its prior decisions. While not explicitly overruling this caselaw, the Court signaled their lack of relevance in determining whether a contract constitutes a maritime contract.

2. Did the parties expect a vessel to play asubstantial role in the completion of the well abandonment contract?

As many expected, this factor is a fact intensive inquiry and, in most cases, will decide whether a particular contract is a maritime contract. The Fifth Circuit's analysis suggests that future courts will look at many different factors in assessing whether a vessel was expected to play a substantial role in performing the contract.

A substantial role does not require the vessel to be involved in the majority of the work. Rather, borrowing from the Jones Act seaman test and as originally suggested in Larry Doiron, the Court further endorsed the position a vessel could play a substantial role if it contributes to 30 percent of the work. The Court implicitly recognized that this threshold could be demonstrated by the percentage of the contract price allocated to the vessels. On this record, however, only the percentage of the actualcost attributed to the vessels could be determined; there was no evidence as to the percentage of the cost expected by the parties at the time of contracting. As a result, the Court concluded the record was insufficient on this point. Again, the Court was quick to focus the parties' expectation at the time of contracting—not what might have actually occurred.

The Court next examined the role played by the jack-up crane barge in the abandonment of the wells. Of note, the barge supplied by the contractor was built to serve as a work platform that could be positioned adjacent to a well. It also stored necessary well abandonment equipment and its crane was used in the well abandonment work. The fact that the barge was being used as a work platform, jacked up above the water—and not as a traditional vessel—was irrelevant to the Court's analysis.

The operation of the wireline equipment from the barge was particularly important to the Court. The wireline services were essential to perform the work. While the Court stated that the necessity of a vessel in performing is not synonymous with playing a substantial role, approximately 50 percent of the well abandonment work involved wireline services operated from the jack-up crane barge. On these undisputed facts, the Court concluded that the parties expected at the time of contracting that a vessel, namely the jack-up crane barge, would play a significant role in performing the contract. Much like the Court limited the relevance of prior cases involving the decommissioning of platforms, the Court also disregarded a long line of cases holding that wireline services are “inherently non-maritime.”

The Crescent Energy Services decision teaches two important lessons. First, Larry Doiron is as significant a change in law as some had envisioned. No longer are contracts to perform certain services presumptively non-maritime. The focus, now, is firmly on the role of the vessel in performing the services—regardless of the type of oil field services. Second, a vessel's actual use in performing the contract is irrelevant. In Larry Doiron, the contract was held to be non-maritime based on the parties' expectations despite the actual, substantive use of a vessel. In Crescent Energy Services, the contract was held to be a maritime contract based solely on the parties' expectations with no consideration of the vessel's actual use. Lawyers that draft or litigate these offshore oil field contracts should take heed. Documenting the parties' expectations within the four corners of the contract would prove very helpful for litigators who must now focus their inquiry on the role any vessel was anticipated to play at the time of contracting.

Andrew Stakelum is a partner in King & Spalding's Houston Office who focuses on tort and commercial disputes involving the onshore and offshore energy industry. His practice spans domestic oil and gas producing states, Latin America, Asia, Africa and their surrounding waters. Andrew also counsels energy industry clients on pre-litigation issues, including contractual risk allocation, domestic oil and gas regulations and compliance with offshore and marine regulations. He can be reached at [email protected].